Time not on Fiat’s side in billion dollar Chrysler deal

MILAN/DELAWARE, Fri Dec 7, 2012 — Fiat’s bid to win full control of more profitable Chrysler is set to become more expensive in a few weeks, as a court ruling on a price dispute drags on and Chrysler’s possible share flotation looms.

The Italian carmaker has 58.5 percent of Chrysler, and a right to buy 16.4 percent more over the next three years at a price determined by a formula worked out in 2009 when Chrysler was exiting bankruptcy.

But a dispute over the price has ended up in a Delaware court, which will decide whether Fiat must pay up to $1.70 billion as demanded by VEBA, a carworkers’ union’s healthcare trust, for the stake. The ruling is unlikely to come by the end of the year as Fiat hopes.

“That works in VEBA’s favor,” said Brian Quinn, a professor at Boston College Law School. “If Fiat wants to get this done by year-end, it will have to settle.”

The amount VEBA wants is double the $754 million Fiat has calculated the stake is worth, based on the formula.

Right now Fiat and VEBA are circling each other like two wrestlers before a fight. Fiat wants VEBA’s stake, and VEBA wants Fiat’s cash. There is only one buyer — Fiat.

That changes from January 1, when VEBA gains the right to sell part of its Chrysler stake in an initial public offering.

That gives it important leverage in any future negotiations with Fiat and could make the price Fiat pays more expensive.

Sergio Marchionne, at the helm of both Fiat and Chrysler, said in October the legal spat could be resolved by year-end.

But law experts say the lawsuit could drag on for months.

“It’s really hard to see how this (case) could get prepared, tried and decided in less than two months,” said Larry Hamermesh, a professor at Widener University School of Law in Wilmington Delaware.

“Barring some showing of need for expedition, or a settlement, I’d say upwards of a year from now would be optimistic.”